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Lenders Perspective
SBA's 7(a) programs are designed to deliver the greatest amount of money to the most small businesses with the least amount of actual taxpayer expense. To accomplish this, the SBA currently offers to guaranty loans made by non-Government lenders rather than provide the loan funds itself. The money comes from the lenders. Taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender, but not to the borrower, since the borrower remains obligated for their full debt, even if they default.
Banks, savings & loans, credit unions, and other specialized lenders participate with SBA on a deferred basis to provide small business loans that are structured under 7(a) guidelines. To participate lenders must execute an SBA Form 750 Agreement. This is a deferred participation agreement that establishes the terms under which SBA will guaranty a loan submitted by the lender.
In order to participate with SBA, a lender must meet the following requirements as indicated in the Code of Federal Regulations (CFR):
1.) Have a continuing ability to evaluate, process, close, disburse, service and liquidate small business loans;
2.) Be open to the public for the making of such loans (not be a financing subsidiary, engaged primarily in financing the operations of an affiliate);
3.) Have continuing good character and reputation, and otherwise meet and maintain the ethical requirements as Identified in 13 CFR Sec. 120.140
4.) Be supervised and examined by a State or Federal regulatory authority, satisfactory to SBA.
When a lender chooses to utilize the SBA guaranty, the lender must certify that they would only make the loan if SBA provides its guaranty. The lender applies to SBA for a guaranty on a proposed loan. SBA will then make its decision whether to guaranty the loan based on the information provide in the loan application.
When a lender's loan is guaranteed by SBA, certain conditions for guaranty are imposed on the lending institution. Some of these conditions are related to how the lender must close and administer the account. Other conditions pertain to the business or its owner(s) and are imposed on the borrower. The borrower agrees to these requirements as a condition for obtaining the loan.
If a guaranteed loan defaults, the lender may request SBA to purchase the guaranteed portion.To begin the relationship with SBA, a lender should contact the local SBA Office and inquire about participating with SBA.
SBA offers its participants (the lenders) a variety of methods for applying for a guaranty on their proposed loans. The differences between these methods are related to the levels of authority and responsibility the lender and SBA have in making the decisions associated with processing, closing, and administering each loan.
Lenders are given authority to take on more of the responsibilities associated with loan making and administration from SBA, based on the lenders historical experience and performance with SBA. The better a lender has conducted its analysis and performed the administration functions in the past, the more likely SBA will not have to re-analyze or check these factors in the future.
Certified Lenders Program
Preferred Lenders Program
SBAExpress Program
Community Express Program
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